Eritrea

The World Bank’s lending program in Eritrea is inactive due to repayment arrears and the role is limited to technical assistance, analytical work, and preparation for broader re-engagement.

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Eritrea’s recent growth performance has been marked by significant volatility in part due to its dependence on a predominantly rain-fed agriculture sector, accounting for about one-third of the economy (and which has a significant impact on distribution services which account for around 20% of gross domestic product (GDP), and on a narrow mining sector which also accounts for 20% of the economy. Real GDP growth is estimated to have recovered to around 12% in 2018, while averaging -2.7% during 2015-18 on account of frequent droughts and a decline in mining production.

Reported inflation has been negative during 2016-18, following the exchange of currency in circulation in November 2015 that resulted in a monetary contraction. Deflation continued in 2018 as increased trade with Ethiopia resulted in further put downward pressure on prices.

In recent years, Eritrea has significantly tightened fiscal policy to reverse the chronic deficits it suffered after the increase in regional insecurity in 1998. In 2018, the fiscal surplus widened to around 11% of GDP in 2018. This was largely achieved by a sharp drop in capital spending as well as some revenue measures. However, fiscal pressures, both recurrent and wage-related are likely to mount.

Short-term growth prospects remain challenging given fiscal constraints and limited opportunities under existing restrictions. The recovery in agriculture is expected to slow. The country remains in a difficult macroeconomic situation with an unsustainable debt burden (including arrears to the World Bank) and vulnerable financial and external sectors.

However, the economic outlook is potentially favorable in the medium term, reflecting the new mining operations coming on stream, but are also dependent on measures to relax restrictions on the private sector imposed and to reopen access to concessional development finance.

Poverty appears to have remained widespread in Eritrea, but the lack of data limits available quantitative evidence. The most recent available survey data from 1996/97 indicate a 70% poverty rate.

The country has seen consistent improvements in life expectancy (rising from 50 years in 1990 to 65 years in 2015) and expected years of schooling (from 3.8 years in 1995 to 5.4 years in 2010) and strong social outcomes in the face of limited resources.

Nevertheless, challenges remain. An unfinished maternal and child health agenda is compounded by a significant rise in Non-Communicable Disease (NCDs). Skilled birth attendance remains low, between 35-60%, maternal mortality ratio high at 485 deaths per 100,000 live births and under-five malnutrition also high with 52% of children underweight.

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The overriding goal of the World Bank Group (WBG) is to support the reduction of extreme poverty and improve the prospects for more shared prosperity in Eritrea. After a hiatus of several years, the Government of Eritrea has recently reopened dialogue with the World Bank on renewed development cooperation.

In response, the World Bank is preparing a Country Engagement Note which would chart the pathway to broader reengagement with Eritrea, to identifying the most critical constraints and opportunities facing the country and to future areas of cooperation. Given Eritrea’s current lack of access to International Development Association financing on account of outstanding repayment arrears, the WBG program will seek to finance future activities through trust funds, partnerships, and the World Bank’s own budget.

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